Organisations choose to outsource for a number of reasons, including perceived cost savings; lack of infrastructure, including equipment and application capabilities; lack of particular expertise or resources; or simply overall business policy. The decision factors involved in the ‘make or buy’ choice are more complex than simply cost or expertise, however. Loss of, or failure to acquire, core competencies within the organisation is a key strategic consideration. So too is the potential loss of value-adding activities offered by functions such as customer services. Customer attitudes to ‘being outsourced’ are also important, and may translate to a competitive disadvantage. In that context, the pros and cons of outsourcing a business-critical function such as sales need to be carefully considered.
Outsourcing can cover many aspects of the sales function, including card sales, merchant sales and administration, ‘special’ selling such as corporate cards, and sales administration and support.
The use of outsourcing organisations in selling cards is frequently considered the best approach in developing markets. The face-to-face contact can serve to validate certain pieces of information never available in a remote direct mail or non-personalised contact methodology employed in more mature markets.
Further, the card sales organisation can be paid for successful applicants only, and the issuer avoids the effort of spending time with applicants who will be declined or are non-responsive.
The management of the sales outsourcing business is fairly straightforward, with reporting being produced as to the various sources and success ratios of the sales effort. Many card-issuing organisations are simply not interested in this as long as successful applications reach targeted volumes.
However, there is one fairly significant factor that is deficient in most outsourcing utilisations – the objective and factual understanding of the reasons why the card is not accepted by otherwise qualified potential cardholders.
Feedback from sales organisations is often anecdotal, self-serving and not specific enough to be of use to the card-issuing business. Solid feedback concerning deficiencies in either the sales approach or the attributes of the card that affect acceptance is vital. Outsourced direct sales organisations must be challenged to obtain information concerning the reasons for non-positive response.
The practice of merchant sales also lends itself to the straightforward outsourcing approach, as standard merchant sales can be regarded more as order-taking than aggressive selling. Typically, over 80 percent of merchant sign-ups are actually simply business name changes from a previously signed merchant. The strongest conduit of truly ‘new’ businesses comes from a parent banking organisation when establishing a new or expanded commercial relationship.
As in card sales, there should be clear and accurate feedback from all merchant sales efforts. Left on their own, sales staff (whether internal or outsourced) will say that lack of success is because the “commission is too high”. There is often too little feedback on any efforts or possible responses to bargaining with the merchant and utilising other factors in the relationship to potentially strengthen the sale, for example, joint advertising and other promotional activities, commission vacations or plateau commission rates.
Some specialty individuals and organisations are becoming available in some markets to offer an expertise in specific business or card customer segments as well as merchant sales. Some of these organisations are doing the entire process on the merchant side, from selling the merchant to establishing the appropriate POS devices, network sign-ups and training.
Merchant network administration
Network administration is essentially the control of access to the network, which is utilised for authorisation of a card and charge posting from the merchant to an issuing bank (authorisations), and to the acquiring bank of the merchant (charges) resulting in charge approval or decline, charge capture, bank to bank internet settlement totals, foreign and domestic charge settlement, and so on.
However, the complexity and needed expertise of organisations to be in this business as primary capture points and primary service providers to merchants has required the banking and cards industries to focus millions of dollars and large segments of their business on a series of technology applications, which become even more complex as time goes on. This is at a time when the basic revenue stream is being challenged.
All this makes outsourcing appear more attractive as a process alternative. The single factor creating a hurdle is the commercial relationship of the bank and the potential of such a relationship for businesses using the card as an entrée. That is, many banks are in the acquiring business through their credit card organisation as an adjunct to a commercial relationship with customers. They feel also that they could obtain additional customers if they could begin the relationship through card acquisition.
Throwing away the relationship
If the third-party outsourcing potential is a bank, then handing over those acquiring relationships is an open door to losing the banking relationship. However, if the market has an outsourcing organisation that is not a financial institution but a processor, the outsourcing is more attractive.
This includes corporate cards, associations, merchant chains, and ‘big’ merchants. Corporate cards refer to large business organisations typically requiring a specialised accounting capability, multiple roll-up levels (for example, individual, department, division, organisation, corporate multi-organisation) and other specialised needs. The international card systems have these special corporate accounting programmes available.
Typically, a cards business would have to control the sales effort and the ongoing management of such efforts. If outsourced, there might be a loss of control and dilution of effectiveness. Further, these larger corporate organisations want to hear directly from their partner in the business and not some third party. Large corporate sales are probably best left within the business and administered directly by the business.
Associations are targets for cards that have affinity memberships relating in a way that might be predictive of a successful card relationship. The group may want a specific plastic programme and a share in fees and other earnings. This type of sale is also best controlled by the issuer to assure direct negotiations on terms, no split of revenue with an outsourcing sales organisation and assurance of continuity of the relationship.
Large merchant chains also typically require the specialised internal sales expertise of the card organisation. Elements of the specialisation might include chaining roll-up of multiple locations, aggressive commission rates and specialised management information systems.
Big merchants might be perceived as the top 20 or 50 in a marketplace and typically include airlines, large multi-location retailers, large multi-location hotels and car rental firms. The organisations are extremely sensitive on commissions and hard bargainers; they may also require the establishment of special relationships on co-advertising and promotional campaigns, and they have a tendency to try to negotiate away from charge-back exposure.
Negotiating these relationships is not an outsourcing function and it should be clear that this is the type of thing that would be done by the card business directly. In fact, it is not unusual for the head of the card business to sit down with the head of a large merchant of this nature to finalise issues or overcome obstacles.
Sales administration and support
Third-party outsourcing has to have minimal need for frequent operational contact with the card organisation, otherwise the economics simply don’t work out. If outsourcing is utilised, the function should be self-supporting, up to and including a smooth hand-over of the appropriate correctly captured source document for card or merchant setups, a plan for smooth notification and action on declines or feedback for data (who does it, how it is done), management information system capture, billing and related functions.
The key, therefore, is to develop the outsourcing competence to such a degree that the outsourcing partner will be able to support their own sales efforts after initial participation in training and coaching by the card organisation.
One of the more difficult issues arising from outsourcing is the transference of the administration of the sale to the administration of the relationship. The following points may be helpful:
a) For general customers
• Make the customer aware of the hand-over through inserts in the original card package and early statements. Introduce the service team; • Look at the customer as someone who is willing to make the change but needs firm direction as to how; • Supply specific telephone numbers, even specific areas of the business that are most appropriate for specific questions. Offer frequently asked questions information to customers; • Do not hesitate to specifically tell the customer that the sales organisation has no data concerning the ongoing relationship.
b) For large organisations for card issuance and merchant relationships
• Train the customer to utilise the appropriate service part of the organisation specified for their needs; • Establish an introduction of the service representatives or the manager of the area with the corporate customers or the association heads or the counterpart at the merchant organisation; • Establish a clear elevation for issue response where both organisations understand what alternatives they have to no compliance on initial inquiry or requests; • See to it that the sales organisation, if internal, is informed and is able to monitor the relationship but not get involved.
* Charles Dalton is the author of the Outsourcing manual in the Credit Card Toolkit series published by VRL KnowledgeBank. The Outsourcing manual covers vendor selection and management, technology, customer service, the credit cycle, operations, finance and human resources, the request for proposal, marketing and sales. For more information contact email@example.com